What is the Competitiveness Compass? Balancing EU Growth and Sustainability
In late January, the European Commission unveiled the Competitiveness Compass, a strategy to enhance the EU’s economic position by simplifying regulations and improving policy coordination. While the initiative aims to strengthen Europe’s investment climate, some critics argue that it could dilute the EU’s Green Agenda.
At SCG, we see competitiveness and sustainability as mutually reinforcing. Companies that integrate sustainability into their models are often more resilient and financially more viable. A well-structured regulatory framework should support businesses that embrace sustainable finance while ensuring environmental policies remain strong and enforceable.
Europe’s Scale-Up Funding Gap
Despite a strong early-stage investment ecosystem, Europe struggles to finance innovation, start-up and scale-up companies. This is due to a combination of reasons, ranging from financial acumen and regulation, to investors’ experience and availability of large funders.
Many high-potential businesses in Europe are not able to expand beyond their national markets and many turn to seek their growth funding outside the EU. The numbers tell the story:
- Venture capital investment in the EU averages just 0.3% of GDP, less than one-third of U.S. levels (IMF).
- Over the past decade, U.S. venture funds raised $800 billion more than their European counterparts (IMF).
- Even in leading financial hubs, scale-ups raise significantly less than in the U.S.—with Germany and Benelux trailing by 71% and 40%, respectively (Jacques Delors Centre).
Insights from Letta and Draghi Reports
The Letta (early 2024) and Draghi (late 2024) reports about the EU Single Market and its competitiveness outline a long list of policy recommendations around topics such as innovation, skills, competitiveness, security and financing.
The European Commission has welcomed these insights and is responding with plans for new financial instruments and regulatory reforms. The EU has made a clear commitment to ensuring that high-growth businesses have the funding they need. However, execution will be key. Europe has seen bold policy commitments before, but many have fallen short in implementation. The real test will be whether these reforms translate into tangible capital flows for scaleups in key sectors such as AI, clean tech, semiconductors, and life sciences.
What’s promising in the Competitiveness Compass?
The Competitiveness Compass introduces major initiatives that will impact private capital markets, investment flows, and sustainable finance. Four key programs stand out:
Savings and Investments Union (Q1 2025)
This initiative seeks to mobilize European savings into high-growth companies, addressing liquidity challenges in private capital markets. It aims to create a more risk-tolerant investment environment, making it easier for businesses to attract funding.
TechEU Investment Programme (2025-2026)
A public-private investment fund backed by the EIB Group, designed to bridge Europe’s scale-up financing gap for deep-tech and sustainability-focused companies. This program will provide growth capital for sectors such as clean energy, AI, and circular economy solutions.
Start-up and Scale-up Strategy (Q2 2025)
Europe’s venture capital ecosystem remains fragmented, limiting companies’ ability to scale. This strategy will introduce harmonized regulations and new incentives to make venture capital more accessible, helping businesses secure long-term growth funding within the EU.
28th Legal Regime for High-Growth Companies (Q4 2025 – Q1 2026)
Expanding across EU markets is often complex due to varying legal and financial regulations. This initiative aims to streamline expansion and investment flows, making it easier for companies to scale across borders.
The Omnibus Package: A Critical Next Step
To reduce administrative burdens, the European Commission is set to publish the Omnibus Package, which aims to simplify reporting under the EU Taxonomy, CSRD, and CSDDD.
Striking the right balance between simplification of reporting and maintaining strong sustainability standards will be crucial. SCG believes that streamlined, high-quality reporting benefits both businesses and investors by improving data transparency and reducing regulatory uncertainty.
Recent roundtables with key stakeholders provided final input to the European Commission on how to align business needs with sustainability goals. SCG will closely monitor these developments to assess their impact on fund managers, investors, and companies navigating sustainable finance regulations.
What Comes Next?
The Competitiveness Compass and Omnibus Package mark a significant shift in the EU’s approach to balancing economic growth with sustainability. If implemented effectively, they could unlock new investment opportunities, strengthen capital markets, and drive sustainable innovation.
SCG is specialized in helping businesses and investors navigate these evolving regulations, ensuring they meet sustainability requirements and use their good practices to seize the best capital-raising opportunities.
For insights on how these changes impact your business, reach out to our team.
